Blog archive - July 2011

Early this week I attended Cisco Live and the adjunct CScape analyst event in high energy Vegas. Despite the press surrounding Cisco’s ongoing troubles (http://tinyurl.com/69hcuo7), the tone of the event was positive and the attendance was a record 15,000+ attendees in-person and 40,000+ attending virtually. Cisco’s executive team remains focused and committed to execute despite the distractions. John Chambers’ keynote was balanced – upbeat but realistic enough to make Cisco’s recovery path appear credible. It covered everything that one expected to hear as Cisco moves ahead, acknowledging the need to streamline the company and focusing on innovation around four key communication tenets – mobile, social, visual and virtual. Cisco’s collaboration business has been a strong performer and was the focus of my discussions at Cscape. Cisco laid out a clear direction and roadmap for Jabber and WebEx, with Jabber becoming Cisco's next generation unified client that ties together multiple communication and collaboration applications. Mobility has long been center stage for Cisco and, as one of the four key tenets, is now even more prominent in the company’s initiatives. Besides the progress made by its own enterprise grade collaboration-ready tablet Cius, Cisco also leads the market in providing extensions of its communication applications over multiple mobile devices and operating systems. WebEx offers High Quality video over ipads, iphones and Android devices. With more than 1 million mobile downloads already, WebEx mobile is clearly a point in case for the fast emerging world of mobile collaboration. Cisco’s overall mobility strategy positions it well for the post-PC era, a clear differentiator over its competitors. Video as expected remains a key highlight at any Cisco event. During his keynote, Chambers set the tone for video’s prominent role in the future with a bold statement that video will not only be the next voice but will also be the primary form of IT. While one may question the ability or willingness of IT and the timeline for the transition, it clearly reflects a growing end user need and the direction that Cisco will continue to pursue. Video has been integrated into all communication clients offered by Cisco including Jabber. Jabber video clients will interoperate with Cisco TelePresence and other video solutions as well. High Quality video within WebEx will be enhanced to HD video, further putting the spotlight on the role of video in desktop collaboration. Lastly, Cisco’s recent focus on openness and standards based products removes several doubts around its ability to interoperate. As one looks at Cisco’s pervasive video strategy, it's reasonable to question customers’ ability to deploy wide scale video and its impact over their networks. I saw demos of Cisco’s recently announced Conductor solution and Prime Software. Conductor, which acts as a traffic director to ensure intelligent conference placement and admin controls, and Prime a comprehensive network management tool could solve several IT headaches associated with broad video deployments. Expect to hear more from Cisco's infrastructure team as it works across several fronts to bring out advanced management and control capabilities. For customers looking at outsourcing videoconferencing, Cisco offers Callway, a cloud -based subscription service which was launched early this year. Interestingly, Callway remains little known and under-marketed. There is a growing need among customers to move video into the cloud for ease of use and management and to enable seamless B2B communications. B2B remains a key challenge for videoconferencing customers today. The Frost analyst team met with BT conferencing, a key Cisco partner, at the show. BT is doing significant work on B2B and managed services for video, providing an open interoperable environment between multiple vendors' solutions and is seeing very strong growth revenue growth for its managed videoconferencing services. At the pervasive video roundtable discussion it was heartening to see a true case of pervasive video presented by West Texas A&M University which is using video for learning, security and communications to enable next generation learning. Video has been integrated through web presence, learning management systems, digital signage, surveillance, and video enabled smart boards using Cisco MXE and Show and Share. James Web, CIO at West Texas A&M University, mentioned that the new generation of students uses video and social media pervasively. As a result, they not only expect video in the class room but in some cases are demanding it. I left CScape with a clear understanding of Cisco’s advantage in the industry as an end to end provider of all elements of collaboration to its customers – messaging, presence, voice, audio, video and web conferencing, unified messaging and mobility. However, Cisco’s collaboration vision is not without challenges. Its product lines today are a mish mash of multiple architectures and form factors. While consolidation is on Cisco’s agenda, we expect it to be a while before we see significant product simplification from an end user perspective. The multiple acquisitions have also resulted in operational challenges. Cisco’s channel integration issues, post Tandberg acquisition, have been well known. Cisco launched a new program for its AV channels early this year. However, its channel issues will be resolved only gradually as Cisco builds a well laid out plan, where each partner sees benefits in the bigger Cisco pond. Lastly, to ensure long term growth Cisco needs to aggressively address its lack of presence at the low to mid end of the market where competition is winning. Not only will Cisco need to redesign the products but also address a new level of price competitiveness that it is traditionally not known for. Over the next several months a key focus at Cisco is streamlining. If Cisco stays focused on its execution plan, it can drive new growth through its collaboration portfolio which is very well positioned to lead in the post-PC era and in next generation communications that will be supercharged with video.

To say that 2010 was a turnaround year for enterprise communications falls short of capturing the relief telecom vendors felt after having overcome the worst recession in a decade. As the economies of the world are beginning to recover, vendors are gradually refocusing their attention on issues pertinent to product and business development, and parting ways with the stress of endless budget tightening. In the case of Digitally Enhanced Cordless Telephony (DECT) and Voice over Wireless Local Area Network (VoWLAN) handsets, 2010 and the first half of 2011 were marked by many interesting developments in terms of product functionality and application integration. Advanced alarm and man-down features, 2D barcode scanners, HD audio (wide-band), more centralized management functions, and superior ruggedized designs are some of the developments that are augmenting the value proposition of wireless endpoints. As endpoints become more intelligent and interoperable with third-party platforms, enterprises will be more likely to consider these solutions. Not only do these devices make workers more productive (consequence of having real-time communication between workgroup members and on-demand access to information) but they also allow for better customer care (the reduction of overhead pages has proven to reduce patient recovery time in hospitals, and improve the customer shopping experience in retail stores). Furthermore, DECT and VoWLAN vendors are designing solutions around the specific needs of the different verticals (hands-free devices for healthcare and retail, and more rugged handset for extreme environments), thus adding even more value for their customers. The effect of these technology developments is made even stronger by two important trends that have gained considerable traction in recent times - enterprise mobility and Unified Communications (UC). The manner in which employees collaborate is being redefined by UC and the mobile solutions that permit remote workers to stay connected with their office-based counterparts. A new work culture is beginning to appear within the global enterprise space, and it’s fair to say that the catalyst behind this change is technology-based. Wireless voice solutions within the enterprise were considered a luxury in the past; however, many companies are now viewing these devices as indispensable for achieving their business objectives. As the devices evolve, the possibilities of incorporating them into the different phases of the value chain grow exponentially. In some cases these devices are even changing the way employees perform specifics tasks. If we look at the process of cleaning up and preparing an Operating Room (OR) in a hospital, the use of wireless solutions has dramatically changed the way hospital staff carry out this particular task. Now with the simple push of a button on their wireless devices, nurses can notify other staff that the OR needs to be prepped for the next patient. As a result many healthcare institutions have been able to maximize OR turnaround and consequently have been able to schedule more procedures. This translates into greater revenue for the hospital as well as better patient care (patients don’t need to wait very long for the OR to be ready). But the examples of improved business process through the use of wireless devices are not limited to the healthcare vertical. Retail stores are finding great value in barcode scanner integration onto the telephony endpoints. Now retail staff can scan any product in the store and make an inquiry with regards to stock availability. This eliminates the need for overhead pages as well as the time-consuming task of having to physically go check the stock room. The list goes on… Both VoWLAN and DECT endpoints are evolving in terms of functionality and application integration. As a result, enterprises are discovering that there solutions provide much more than just audio communication. These devices are making their way into the day-to-day workflow of specific verticals and in many cases changing the way specific tasks and processes are performed. Frost & Sullivan expects these endpoints will offer even greater features and functionality in the future. Don’t be surprised when video becomes standard on VoWLAN devices (the next big trend in enterprise mobility). With the ratification of the IEEE 802.11n standard, expect to see great advancements in data-intensive applications. As enterprise users become accustomed to the greater convenience and productivity granted by wireless devices, they will increasingly demand such solutions in their workplace, driving further growth in the VoWLAN and DECT markets.

A consortium led by Apple, EMC, Ericsson, Microsoft, RIM and Sony won the Nortel IP portfolio auction with a bid of $4.5B The announcement certainly surprised some who expected the proceeds to be more in the range of $1.5B. Moreover, the final price tag reflects a 5x multiple on the initial stalking horse bid made by Google. While companies will be committing different amounts (RIM has a $770M contribution while Ericsson's contribution is $340M, and RIM probably won't be getting any of the semis patents), the announcement at least represents a silver lining for Canadians, as some of the patents will be staying home with RIM. Rationale for the $4.5B valuation This is the most widely asked question - is it indicative of the current frenzy within the patent and IPR industry? Perhaps, but some quick back-envelope calculations might suggest that the winning bid might not have been as exuberant as some pundits believe. For instance, W-CDMA phone unit volumes in the first seven years of their introduction were in the range of ~ 1B units; within the first 10 years, in the range of ~ 2B units. Assuming LTE handsets follow a similar pattern, then this deal cost the consortium ~ $2.25 / handset (= $4.5B / 2B) So this means it's more or less within 1% of the price of an LTE handset that is pegged to cost between $200 to $250 on average. Which means that this price is really at the high end of that valuation (i.e. within a 1% royalty range). Of course this does not take into account other intangibles that are hard to factor such as potential windfalls such as improved competitive positioning, successful patent infringement lawsuits, patent infringement lawsuit avoidance, and possibly the spin-off of some patents to patent holder players such as Mosaid Technologies, among others. Happy Canada Day!